Information published on 12 December 2017 in the UIC electronic newsletter "UIC eNews"
Nr eNews.

Unlocking finance for railways: UIC’s first international workshop on rail financing held on 6 December 2017 in Paris

Unlocking finance for railways: UIC’s first international workshop on rail financing
UIC launches its Centre for Rail Financing and PPPs

The global infrastructure funding gap is today widely acknowledged: more than $50 trillion must be invested in infrastructure to maintain economic growth through 2030, according to McKinsey Global Institute and the World Bank estimate. Indeed, infrastructure assets, and especially railway infrastructure, require great capital, have long-life spans and need complex operations. However, today, public agencies are typically operating under constrained budgets and facing increasing pressures to allocate the necessary resources in order to cope with the growing demand for sustainable mobility.

“There is no doubt that railways stand as a core driver of economic growth and prosperity, being a key enabler for sustainable development. And obviously, financing is at the heart of it, a critical priority for UIC and its members! We must together enable greater investment in railways not only to deal with the growing demand driven by macro-economic trends, such as demographic growth, urbanisation, road congestion, but also to achieve the 2 degrees objective of the Paris Agreement,” said Jean-Pierre Loubinoux, UIC Director General.

What is needed is a better use of public sector revenue sources together with greater recourse to private finance. New approaches with private sector participation appear to be the way forward in developing countries to unlock capital and expertise, while they are becoming more and more popular in mature economies.

Last week, alongside the UIC General Assembly, UIC brought toegther railway leaders and the infrastructure finance community in Paris, to discuss whether and how private finance and models such as PPPs may play a central role as a catalyst for investment in railway infrastructure, open further opportunities to improve the scale, quality, and speed of infrastructure delivery in the whole life-cycle.

“It is an import element for railways to insure investments occur in a coordinated manner between public and private stakeholders. It is all about developing a common understanding of the needs, and this requires a continuous-dialogue loop,” said Keir Fitch, Head of unit C4, DG Move, EU Commission.

International experts and UIC members across all relevant backgrounds reviewed the current state of PPPs in railways and debated the requirements for a greater anticipation and follow up capacity within national railways for both having a global whole-of-life view of PPP projects and fostering private investment, all with regard to sustainable development, economic, operational and legal considerations. All agreed that good coordination and information sharing between stakeholders are important pre-requisites to boost PPPs in rail.

The discussions confirm the global trend of the growing private sector partnering, becoming a serious component to railway infrastructure financing and management, where models such as PPPs constitute a promising solution to attract effective private participation, with a clear emphasis on the need of more information sharing between all stakeholders.

By a number of highly valuable real-life examples and stories covering all UIC regions (Europe, North America, Africa, Middle-East and Asia-Pacific), the workshop panellists emphasised that the use of private capital can bring many positive benefits by putting pressure on railway companies to improve efficiency and productivity, timeliness of project completion, as well as free up resources for traditional procurement. At the same time, investors recalled that despite the availability of substantial liquidity for infrastructure investment, with appetite for rail and willing to take even more risks, investment opportunities are very limited.

The fundamental question we should ask then is whether investable projects are sufficiently available, how to secure reliable revenue streams, capture more value from railway assets better share risks. It becomes clear that a sound project preparation and structuring is fundamental, as this is one of the most critical components to achieve a fair access to finance. This includes a clear definition of project goals; good estimation of delays and costs; systematic risk analysis and well-balanced risk sharing. All in all, develop investable pipelines of projects!

A brand new UIC Centre for Rail Financing and PPPs
Being aware that these kinds of conditions require long-term effort and bolstering capacity, UIC believes that members would benefit from collaborating and sharing more information with international financial institutions, investors and lenders, in more structured ways. Indeed, speakers and participants, from the public and private sectors, expressed their growing need for a central body to concentrate best practice and provide guidance on rail PPPs, involving a broad range of stakeholders, and that UIC is the best suited to take the lead.

For all these reasons, Jean-Pierre Loubinoux announced the launch of the UIC Centre for rail financing and PPPs, which would support stakeholders pro-actively seeking the specificities and requirements of each other, attract and improve private investment in rail and oversee the long-term management it brings. One key element is to bring together within this Centre, UIC members, and all the public and private stakeholders, across the globe, which look forward to boosting their PPP capabilities or are involved in implementing PPPs in the rail sector.

t makes a successful public private partnership and describe what can be done by railways to oversee the future opportunities and challenges. To do so, it will build a comprehensive database of case studies, analyse the lessons learned and leverage the breadth and depth of UIC technical knowledge to draw out the key success factors for future PPPs in railways.

It is worth mentioning in this regard, that UIC has already started collaborative work with the World Bank and the Station Managers Global Group for a guidebook on railway station PPPs, and looks forward to strengthening cooperation with major international financial institutions in this field. Last week’s event was a starting point in this structured dialogue UIC is building with PPP and railway stakeholders worldwide.